(Adds signing of agreement, details)

By James Regan

SYDNEY, May 25 (Reuters) - Chinese aluminium group Chalco <2600.HK> Friday signed an agreement with Australian Aboriginal groups as it seeks to mine the vast Aurukun bauxite reserves in eastern Australia.

Australia's Queensland state last year picked Chalco, or Aluminum Corp. of China Ltd. from a field of 10 to develop the reserves, which have lain dormant for decades.

The agreement was signed by the Wik and Wik Way peoples, Chalco and the local Aurukun Shire Council.

Queensland Deputy Premier Anna Bligh said the pact was an important milestone for the project and that a feasibility study prior to development would now commence.

"Comprehensive planning will ensure the project meets world's best practice in managing social economic and environmental impacts and preserving the culture heritage of the Wik and Wik Way peoples," Bligh said at the signing ceremony.

Meeting the concerns of indigenous landowners over royalties and access has long been part of Australia's mining landscape and key to winning development approvals.

Mining companies frequently announce such agreements to assure investors that projects will proceed.

An Australian court this month ruled against a A$110 million ($90 million) redevelopment of a zinc mine owned by Swiss-based Xstrata <XTA.L> after a challenge by local landowners.

The government opened the deposit for tender after Alcan Inc. <AL.TO> forfeited its development rights. It is the first step in a wider aluminium-making project proposed by Chalco costing around A$3 billion ($2.4 billion).

"PROSPEROUS FUTURE"

Geologists estimate the Aurukun bauxite reserve ranges in size from 500 million to 650 million tonnes. It takes about four tonnes of bauxite to make two tonnes of alumina. Two tonnes of alumina is used to produce a tonne of aluminium.

The Minister for Aboriginal and Torres Strait Islander Partnerships, Warren Pitt, said development of the deposit would help secure a prosperous future for the Wik and Wik Way communities.

"This in turn will help reverse the trends of significant economic and social disadvantage, including high unemployment rates, significant health concerns, and a high incidence of alcohol-related violence," Pitt said.

Chalco had been tipped as the main contender to develop the project after Rio Tinto Ltd./Plc. <RIO.L> <RIO.AX> and Alcoa Inc. <AA.N> both pulled out.

Xstrata and Brazil's CVRD <VALE5.SA> <RIO.N> also showed interest in a development plan at one point.

An early blueprint calls for 3,800 construction jobs over three years, including 700 for the mine and washing plant at Aurukun and 3,100 for the refinery. It would also require a permanent workforce of about 600.

The plan was to extract 7.5 million tonnes of bauxite every year from the lode.

Aurukun is a predominantly Aboriginal community of about 1,000 people in the remote area of Cape York, near similar deposits mined by Rio Tinto.

Cape Alumina Pty Ltd., 17.5 percent owned by Chinese aluminium group Chiping Xinfa Huayu Alumina Co Ltd., has also gained approval to look further afield in Cape York for bauxite in Australia, underscoring China's hunger for the mineral.

The approval followed 18 months of consultations with the Mapoon Aboriginal Council over access to the land. ($1=A$1.22)

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